Did Video Kill The Radio Star? Not Quite It Didn’t

Recently there has been intense debate over whether the revenue that incumbent telecoms operators generate from their bread and butter voice services is in terminal decline as innovative VoIP services such as Vonage VoIP have emerged competing head on with the incumbents. Many have been saying for years that the golden days of the telco are over.

Some analysts beg to differ, and make the case that voice still is and will continue to be a prosperous enterprise for operators for a little while longer.

Lack of Net-Neutrality

Earlier in the year The Dutch Parliament signalled its intent to become the first European country to officially legislate net neutrality. This would force internet service providers and operators to treat all types of traffic equally for all services including VoIP applications such as Vonage VoIP.

That was a huge deal for consumers, and was monumental for all Mobile VoIP and IP messaging applications in Holland.

However for net neutrality to become ubiquitous, it will take more than a single country, and all other countries must also adopt a set of similar laws and practice, which is inevitable, but is likely to take a while yet.

Until universal net neutrality becomes a reality, telecom operators legally have the right to block applications on their networks, or charge their subscribers extra for using third party VoIP, such as Vonage VoIP, to offset their revenue loss. Indeed some already levy these additional charges. With others likely to follow suit.

Operators Sell Bundled Services
Most telcos actually sell their subscription plans as bundles of different services. Which means under a plan you get a defined number of text messages and a defined number of voice minutes, and that type of pricing is highly unlikely to change any time soon. As telcos face ever greater competition on multiple fronts, building an effective sales strategy is a powerful way to protect and enhance their revenues.

Feature Phones Not Dead Yet

It is no great revelation that smartphone sales have grown exponentially, with some estimating that in 2010, they grew by 40%. It is expected that in the year 2014, there will be 1.4 billion smartphone unit sales, and with the current adoption rate Nielsen reckons that smartphones will overtake feature phone sales in the US by the end of this year.

Clearly this trend represents an enormous opportunity for companies such as Vonage VoIP to target customers with mobile applications that are disruptive of existing business models. The market will be large enough for companies such as Vonage VoIP and Skype to take huge chunk out of Voice revenue of incumbent telcos.

However the absolute picture is much more important than the relative one. On a global level, feature phones dwarf smartphones by a factor of 4 to 1. It will be a while before that ratio becomes one which represents an existential threat to incumbents on a global level, though it must be said the ratio varies on a regional and economical developmental level, so the telcos at risk are the ones with the wealthiest customers, and who tend to be the biggest.

For now though, operators have room to breathe, the requirement for conventional voice services will continue unabated for some time yet. But they must start preparing for the new world order that in inevitable in the future, they must learn to embrace the future and not fear it, to not let equity markets and share holders seeking immediate returns drive their planning for a sustainable future, one in which they survive the internet protocol transition.

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